Government Bond Investors Shun Size in Favor of GDP

By Michael Aneiro

With developed countries piling on debt, big investors are increasingly looking beyond size when deciding on government bond benchmarks, and turning away from Treasury bonds in the process. Bloomberg’s Alexis Leondis and Lisa Abramowicz report today:

Norway’s $702 billion sovereign-wealth fund and Pacific Investment Management Co. are starting to shift to indexes that favor less-indebted nations with growing gross domestic product, such as Brazil and South Korea. Pimco boosted the proportion of Mexican holdings while trimming the percentage allocated to U.S. issues in its biggest exchange-traded fund. BlackRock Inc. (BLK), the world’s largest money manager, with $3.8 trillion in assets, has $3 billion tied to a gauge based on credit-worthiness rather than capitalization.

The move away from market-size benchmarks that guide at least $9 trillion in fixed-income investments may raise borrowing costs for industrialized nations and curb those for developing economies. Bonds from the Group of Seven countries underperformed the global government debt market last year by the most on record.